SAP Acquires SuccessFactors: Forecast Calls for More Clouds

The shift toward delivery of Human Resources (HR) applications via Software as a Service (SaaS) in the Cloud continues with SAP AG announcing its planned $3.4 billion acquisition of SuccessFactors, a talent management software provider.

The fact that SAP agreed to pay a 52% premium for SuccessFactors indicates both the urgency it felt to increase its Cloud and SaaS credibility and its lag in internal product development. SAP expects to complete the acquisition in the first quarter of next year after which SuccessFactors will remain an independent company operating under the name “SuccessFactors, an SAP company.”

What does this acquisition bring to these organizations?

In a recent call, Bill McDermott, SAP’s Co-CEO, said “the combination of SuccessFactors and SAP will create a Cloud powerhouse.” SAP plans to use its scale to boost SuccessFactors’ revenue, which was $205.9 million in 2010 with more than 3,500 customers in 168 countries.

Lars Dalgaard, CEO of SuccessFactors, said “the deal would accelerate SuccessFactors’ roadmap by 10 years.”

The TPI point of view

SuccessFactors will continue to operate separately, causing no immediate impact to its talent management clients. A number of HRO providers use SAP and SuccessFactors to deliver services. We do not expect this acquisition will impact the providers’ ability to leverage SAP and SuccessFactors to deliver service to their clients, even as we anticipate these underlying systems will continue to evolve and improve.

This acquisition is a validation of the Cloud’s bearing on Human Capital Management solutions. When it acquired SuccessFactors, SAP acquired Cloud technical expertise and infrastructure, giving it a foothold in the growing market for Cloud services. Both companies should benefit from access to an expanded customer base.

The demands on HR technology are changing rapidly with a particular push for mobile access, social collaboration and business-driven analytics. Once they sort out their future technology path, SAP and SuccessFactors together should have the products and the experience in delivering Cloud, mobile, social and analytics applications to provide innovative HR solutions in the future. Whether they can do this quickly enough to compete effectively with Workday remains to be seen.

We expect to see more Cloud acquisitions in the future. These acquisitions should spur organizations to reassess their human resource technology roadmaps.

About the author

As a Principal Consultant at ISG, Ms. Loux brings considerable experience in delivering HR, benefits and payroll projects to clients. Her expertise includes assessment, business case development, process redesign, service provider selection, shared services and benefits administration implementation.